First mover advantage – is it still a thing?

The mantra of dotcom start-ups in 2000-1 was ‘Get big fast!’ It didn’t work out for first mover social network uboot.com though. Uboot went from zero to 2.5 million UK users in 3 months and then sank without trace when facebook came along 5 years’ later. I know because I was the Marketing Director at launch, although I had long gone before the advent of Facebook. I do remember doing the rounds of London ad agencies trying to explain the concept of networked profile pages and photo feeds to a bunch of bewildered media buyers.

Advantages of being the first mover

The received wisdom has been that it is best to be first to market with innovative products and services, as first movers get a head start to carve out a dominant market share.

This is because:

• First movers can build brand awareness and a loyal customer base before competitors start piling into the market
• They can tie suppliers into exclusive contracts
• They can dominate distribution channels
• There may be switching costs that prohibit customers from moving to a competitor
• They can build economies of scale which create a barrier to new entrants in the market

Why are fast followers more successful?

Given the advantages of being a first mover, why is it that most successful companies are not first movers but fast followers? A 1993 paper in the Journal of Marketing Research backs this up with a 47% failure rate for first movers versus 8% for fast followers.

Advantages of being a fast follower

Innovators spend considerably more on R&D than fast followers who can reverse-engineer the pioneer product.

Developments in technology mean that they can improve on the original product or service and steal the first mover’s customers. So everyone abandoned AltaVista for Google which had a more user-friendly interface and returned more relevant search results.

Fast followers can also learn from the mistakes made by the first mover and avoid them.

First movers have to spend resources educating the market. They have to promote understanding of the new category as well as marketing themselves – remember my meetings with ad agency buyers.

The market may not be ready when first movers launch and they risk burning through their cash by the time the market catches up. By hanging back, fast followers can let first movers do all the work educating the market and reap the rewards when they decide to finally launch.

Companies that were fast followers:

Amazon was not the first to sell books online

Facebook followed Myspace

Uber followed Zimride (which later launched Lyft)

Couchsurfing came before Airbnb

The iPhone leapfrogged Blackberry which in turn leapfrogged Nokia and Palm

Before Google, there was Yahoo and Altavista

Starbucks did not invent the café – they just did it better than anyone else

In summary

Turns out it’s better to be a fast follower than a first mover, companies with second mover advantage are the real winners.